Owning a home can be one of the most exciting milestones in your life. It’s a dream come true, the start of a new life or family, a gateway to independence and freedom to shape the life that you want.
But your new home could also be the most expensive purchase in your life. Whether buying a house and lot, a townhouse unit, or a condominium unit, you likely need a home loan from a bank.
So, how do you apply for a bank loan in the Philippines? Here are some loan application tips, plus all the steps you must take to get the proper financing for your dream home.
Before you grab that loan application form or visit your bank branch, you must determine your target loan amount. It will affect not only your down payment but also the monthly amortization, which you will need to pay for several years. Having a good grasp of your finances before making any hefty purchase is a given.
Here are some guide questions to help you determine how much you need to loan from the bank:
You can gauge if you can afford the possible home down payment by checking it against how much cash you have available. A typical down payment amount is 20% of the property's cost. You must also consider other charges when applying for a home loan, such as processing, appraisal, transfer, and documentation fees.
It's advisable to strike a balance when setting your loan amount. While aiming for a higher loan can reduce your down payment, it also leads to a higher monthly amortization. Target a loan amount that allows for a manageable down payment and ensures you can comfortably meet your mortgage bills.
Consider various factors when researching home loan options. When comparing different lenders or loan options, pay close attention to the interest rates they offer, as this directly impacts your monthly payments.
Two main kinds of interest rates may be available to you:
When researching home loan options, find out if you can switch from variable to fixed interest rates during your loan term, and if repricing fees will apply, if any.
Interest rates are not the only factors that affect your monthly amortization. Loan tenure, or how long you need to pay out your loan, is also critical in determining how much your amortization will be. The longer you spread the payments out, the lower your monthly amortization will be.
When applying for a home loan, expect the bank or lender to request specific paperwork. These documents demonstrate your ability to make monthly payments and assure the bank that they still get compensated in case of unforeseen circumstances preventing payment.
Most loan application requirements show your income and other assets that can serve as collateral.
Standard home loan application requirements:
You need a stable income to get a better chance of getting approved for a loan. Your bank statements, payslips, and tax returns should reflect your capacity to fulfill your monthly payments for many years. It also helps to pay out any outstanding loans you may still have so that you free yourself up to fulfil future loan obligations.
Before submitting your loan application, make sure that everything is complete and accurate. A few missed details here and there could delay the approval process, or worse, your application could be denied. It helps to submit all your requirements in person so the bank can double-check everything.
During the approval process, the bank will check if you meet their criteria for a qualified borrower. They will evaluate your monthly income, assets, credit history, and other indicators of your capacity to pay. However, if the lender deems you qualified for a loan, the application process doesn’t stop there. The next step is the appraisal.
Before the bank approves your loan, they assess the value of the property you're buying through an appraisal. This helps them determine the loan amount. Typically, they offer around 80% of the property's market value to the seller.
From there, the bank can now formulate your amortization schedule. When both the approval process and appraisal process are complete, the bank can now send a letter of guarantee to the seller, which formalizes the amount they will pay. The bank will then send you documents to finalize your loan, including the loan amount, loan tenure, amortization schedule, and type of interest.
After loan approval comes the equally important part: making sure you can pay your monthly amortization. Missing your payments will lead to penalty charges, which, if you think about it, is as if you're allowing your loan amount to increase.
You can contact your bank and ask if you can change your interest from fixed to variable or vice versa. You can also ask them if you can make one large payment to either decrease your remaining balance or shorten your loan tenure. Just make sure you always communicate with your lender so that you can have a harmonious home-owning experience.
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